Long-term financial moves in a short-term world

Thursday

Sep 20, 2007 at 12:01 AM

By Warren Albrecht

As a society, we have grown accustomed to instant gratification. You can lose 20 pounds in two months, learn a language in six weeks and download your favorite songs in seconds. The idea of waiting for what we want, it seems, has become a quaint relic of bygone days. Of course, in many walks of life, there's probably nothing wrong with having your desires fulfilled quickly - but the "get it now" attitude can actually have some negative consequences when it comes to spending, saving and investing.

Want proof? Consider the following:

*In the fourth quarter of 2006, families spent 14.5 percent of their disposable income to service their debt - the largest share since 1980, according to the Center for American Progress.

*The first quarter of 2007 marked the eighth quarter in a row with a negative personal savings rate, according to the U.S. Bureau of Economic Analysis.

*Almost half of workers who are saving for retirement say that their total savings and investments (excluding the value of their primary residence and any pension plan) is less than $25,000, according to the Employee Benefit Research Institute's 2007 Retirement Confidence Survey.

What can you do to avoid some of the financial problems that may arise from short-term behavior? Here are a few suggestions:

*Delay purchases. Try to think about all purchases overnight and calculate how long you'd have to work to pay for them. You might be surprised at how many items you can actually do without.

*Limit your borrowing. It's easier said than done, of course, but the fewer debts you have, the more you'll have available to save and invest. While it may not be possible for you to pay "cash" for everything you buy, it's nonetheless a worthy goal, and the closer you can come to achieving it, the better off you'll be.

*Pay yourself first. If you wait until you've paid all your bills and other expenses each month before you save and invest for the future, you're probably going to make very slow progress toward your goals. If you can "pay yourself first" by putting money in a savings or investment account every time you get paid - even if it's just a nominal amount at first - you'll help yourself greatly over time.

*Be patient - and buy quality. From 1926 through 2006, large-company stocks provided an average annual return of more than 10 percent, while small-company stocks returned, on average, more than 12 percent, according to Ibbotson Associates, an investment research firm.

Of course, past performance is not an indication of future results and you can't assume that, for a given year, your stocks or other growth-oriented investments will return 10 percent, 12 percent - or anything at all.

In the short term, all growth vehicles fluctuate in price so you shouldn't be shocked at losing principal over a single year, or perhaps a couple of years in a row. But if you buy an array of quality investments and hold them for the long term - at least five to 10 years - you can help increase your chances to achieve some growth.